Why Russia Sent Shares of Golar LNG Limited (USA) Surging Today

Although we don't believe intiming the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Golar LNG Limited jumped more than 10% today following the announcement that it had signed a memorandum of understanding with Russian oil giant Rosneft that would use Golar's floating liquefaction facilities to develop some of Rosneft's natural gas assets.

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So What: Golar has been taking on a daring strategy recently. For the past few years it has been repourposing some of its older LNG carrying vessels to be floating liquefaction terminals as a bet that natural gas fields in remote offshore locations would be better served with a floating structure rather than building all the infrastructure for a fixed onshore terminal. This deal with Rosneft seems to suggest that it was a well placed bet.

While the specific details of what this deal with Rosneft will look like is unknown, the memorandum of understanding encompasses two separate deals that will be signed for use of Golar's two floating liquefaction facilities under construction. Once completed, they will go into operation for Rosneft. This deal will take a while to come to frutition, though, since Golar currently has only one of its older vessels undergoing a conversion to a liquefaction terminal and will not be operational until at least 2017.

Now What: It's going to take a long time for Golar to reap the benefits of this deal, so it does seem a bit much for shares to jump as much as they have for a potential deal that won't start to impact the bottom line for another 2 years minimum. Still, it is a sign that the rather bold decision to convert the oldest assets in the fleet into innovative new products was a good one. Hopefully for Golar, more deals like this will be headed its way.